Fitch’s Bold Call on China Banking-System Risk

Mar 10, 2011 11:02 am HKT

Reuters

Fitch Ratings has developed a strong record on China’s banking sector in recent years, thanks largely to the perspicacious analysis of its lead banks analyst in Beijing, Charlene Chu. She was one of the first observers, back in 2009, to flag how Chinese banks were moving loans off their balance sheets to lightly regulated trust companies to avoid government lending caps. This past December, she and her colleagues published a report estimating that China’s banks had used trusts and other tools to blow past the government’s 7.5 trillion yuan ($1.14 trillion) quota for new yuan loans 2010 to the tune of an additional three trillion yuan not recorded on their balance sheets.

Last month, the People’s Bank of China effectively validated Ms. Chu’s analysis, saying that its longstanding measure of new bank lending failed to capture actual credit flows, and that the banks were responsible for creating around 11.5 trillion yuan of new credit last year.

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